Time for financial institutions to mainstream climate

Today, a group of 26 financial institutions from across the globe, including the World Bank Group, launched five voluntary Principles for Mainstreaming Climate Action within Financial Institution. The Principles are meant to support and guide financial institutions moving forward in adapting to and promoting climate-smart development, and have been developed based on practices implemented by financial institutions worldwide over the last two decades.

Why are these Principles important? Climate change poses a wide range of new risk and opportunities for financial institutions. And the implications are broad – covering energy, transport, forestry, agriculture, water and other investment sectors.

It is becoming more and more clear that to achieve core business objectives, all financial institutions will need to deepen existing efforts to integrate climate change considerations systematically and explicitly across all levels of their engagement from strategies to programs and operations. This will require that leaders within financial institutions cascade this through management structures, programs and products.

The Principles note that financial institutions will have to undertake two – simultaneous – activities:

Many of the World Bank Group’s efforts help mainstream climate change. Over the last five years, the Bank Group has committed an average of US$10.3 billion a year of its own resources, or around 21 percent of commitments, to help developing countries and emerging economies mitigate and adapt to the challenges of climate change.

Cumulatively, over US$50 billion dollars has been committed to more than 900 projects with climate-related activities, with 27 percent focusing on helping people and countries adapt to a changing climate and 73 percent on mitigating the impact of climate change. Mitigation activities have included support for changes to urban transportation and railways, investments in hydropower, other forms of renewable energy, and promotion of energy efficiency.

Adaptation activities have included projects supporting coastal and flood protection, irrigation and draining systems, protection for forests and landscapes and developing resilient crop system to scale up capital for the low-carbon transition. Notably, last year we began to screen all our IDA projects for climate and disaster risks, and have developed a Climate and Disaster Risk Screening tool that all our investment and project staff can use when developing a project.

The World Bank Group has also scaled up its efforts over the last decade to blend concessional sources of climate finance with our own to ensure that transformational projects move forward, particularly with the private sector. IFC’s Blended Finance for Climate team has invested nearly $300 million in climate finance alongside more than $1 billion of IFC investments, and more than $4 billion of private sector funds to support over 40 investment projects in 23 countries. These investments helped bridge gaps and address market barriers that obstruct private sector investments in areas of strategic importance.

Finally, the work of the Carbon Finance Unit, GFDRR and the World Bank Group’s issuance of green bonds, have all worked to integrate climate considerations into financing mechanisms which support our clients ability to integrate a meaningful price on carbon, address climate risks and disaster planning, and crowd-in additional investors who wish to invest their funds in climate-friendly ways.

Alone, each of these efforts are important, but taken together, they truly help to bring climate change into the mainstream of our operations. More importantly, we believe these Principles are important because we also know that this work cannot be done by a few financial institutions alone. If we are truly going to keep warming to 2 degrees, we know that all of finance needs to be oriented in a way that allows for scaling up of low carbon solutions and financing that builds in resilience to our warming world.